The Securities and Exchange Board of India has proposed allowing certain companies to issue small-value debt without appointing a merchant banker. The move aims to cut compliance costs for low-risk, established firms. Investors should note that the exemption applies only to debt with a face value of ₹10,000, provided the issuer meets strict financial and regulatory criteria.
The Securities and Exchange Board of India (SEBI) has released a consultation paper on August 27, 2026, proposing to remove the mandatory requirement for appointing a merchant banker for certain private debt placements. This move is designed to lower fundraising costs and simplify the process for established, low-risk companies that are already under regulatory supervision.
Typically, when a company raises money through debt, it must appoint a merchant banker to act as an intermediary. This professional is responsible for managing the issue, verifying disclosures, and ensuring the company follows all rules. For smaller debt issues, these fees can represent a significant portion of the total cost. SEBI’s proposal seeks to balance this efficiency with investor safety by limiting the exemption to debt securities or non-convertible redeemable preference shares with a face value of ₹10,000.
Not every company will qualify for this relaxed rule. SEBI has proposed a set of strict criteria to ensure that only the most reliable issuers can skip the merchant banker step. To be eligible, an issuer must already be registered with or regulated by a financial sector authority. Additionally, the company must have been listed on a recognized stock exchange for at least one year and have a clean record with no pending fines or penalties related to listing disclosures.
The proposal also includes mandatory financial health checks. Issuers must show that they have not defaulted on any debt, interest, or dividend payments for the past three financial years, including the current period. Verification of this history must be confirmed through an auditor’s certificate submitted to the exchange. Furthermore, the debt instruments themselves must carry a credit rating of AA- or higher and be structured as senior, secured assets, meaning they have a clear priority claim on the company’s assets if things go wrong.
For investors, this change implies a shift in how due diligence is performed. Merchant bankers typically act as a gatekeeper, providing an extra layer of verification for the information provided in an offer document. By removing this requirement for smaller issues, the burden of ensuring accurate disclosure and compliance falls more directly on the issuer and its statutory auditors. While the proposal aims to reduce costs, it also makes the company’s internal governance and the quality of its audit reports more important for those looking to invest in these debt instruments. Public comments on this proposal are open until September 17, 2026.